4.2 Profits, Profit Rate and Output: An Empirical View from India’s Rural and
4.2.4 Output and Growth in Output
The exponential growth rate of profit rate could be calculated for 14/23 industries in the ruralsector and 16/23 industries in the urban sector. Most number (six each) of industries in the rural and urban sectors registered a growth of profit rate in the range 0% ≤ 𝑔𝑟 ≤ 10%, where 𝑔𝑟 is the rate of growth of the profit rate. The next highest group of industries (five each) figured in the range 10% < 𝑔𝑟 ≤ 25%. Only three urban industries had a profit rate in the range 25 %< 𝑔𝑟 ≤ 50%. A greater number (18/23) of rural industries had a higher compound annual growth rate of real profit rate than their urban counterparts in the study period. This indicates the potential for the growth of rural industries vis-à-vis urban industries.
At the aggregate level, the rate of growth of profit rate in the rural organised industrial segment (19.85 per cent) was higher than that in the urban segment (14.85 per cent). The higher rate of growth of profit rate in the rural sector vis-à-vis the urban sector augurs well for the rural economy. However, the observed higher value is possibly due to low initial values of profit rate of most rural industries and the sector as a whole. Rising profit rates may prompt higher growth in output. This is what we turn to next.
Examination of the quantum of change in the output of organised manufacturing industries follows.
reveals that 8/23 rural industries have higher levels of output than their urban counterparts, indicating that output levels of most urban industries are better43.
Figure 4-2 Output (Y) of Rural and Urban Organised Manufacturing Industries (2007-08)
Period Real Output of Rural Industries Real Output of Urban Industries
1998-99 6593871.05 11450330
1999-00 7028860.61 11718662
2000-01 6857280.84 9963721
2001-02 6840084.13 9750887
2002-03 8281929.04 11038887
2003-04 9134010.2 12389968
2004-05 10874046 15041016
2005-06 13607745.1 16770107
2006-07 18390012.9 18114891
2007-08 21670323.6 20681818
Source: Computed using Time Series Data on ASI (1998-99 to 2007-08),.
The industry-wise and sector-wise exponential rate of growth of output44 (𝑌̂) of organised industries (see Table 4-3) shows diverse trends across industries and sectors.
All rural industries showed a positive growth rate of output in the range of 4.68 per cent to 28.95 per cent in the period 1998-99 to 2007-08. 14/23 industries registered a two- digit rate of growth of output. Most (18/23) rural industries had a higher rate of growth of output than their urban counterparts. In the earlier sections, we found that i) in certain time periods, a greater number of rural industries had a higher profit rate than corresponding urban industries; ii) during the study period, the rate of growth of profit
0 5000000 10000000 15000000 20000000 25000000
Real Output of Rural Industries ( lakh rupees) Real Output of Urban Industries (lakh rupees)
rate of rural industries was higher than urban industries. The latter implies that the profit rate of rural industries was growing faster. The observed higher growth of output in rural industries is perhaps a reflection of the faster rise in profit rates. Urban industries registered an output growth rate in the range -0.11 per cent to 20.77 per cent. In fact, output growth decelerated in some urban industries (industry code 16, 24 and 32). At the aggregate level, rural industries registered an output growth rate of 13.55 per cent, whereas urban industries registered 7.55 per cent. This robust growth rate of output especially of rural industries spells well for the rural economy.
We wanted to assess statistically the nature of the relationship between profit rate and the rate of growth of output of rural industries. We found that irrespective of the regression model used, the rate of growth of rural industrial output is positively dependent on profit rate and it is statistically significant (refer Appendix 4, A4-9). Therefore, in a subsequent section we diagnose profit rate to find out which, component of profit rate is driving growth in output. To identify the drivers of profits, we carried out two-factor profit rate decomposition from a medium run perspective, which is premised on Weisskopf’s (1979) theoretical framework.
Table 4-3: Exponential Growth Rate of Output and Labour in India’s Organised Manufacturing Industries in the Rural and Urban Sectors (1997-98 to 2007-08)
IC Industry Description
Exponential Growth Rate of Output in Organised Industries in the Rural Sector
Exponential Growth Rate of Output in Organised Industries in the Urban Sector
15 Manufacture of Food Products and Beverages
0.0575* 0.0298*
16 Manufacture of Tobacco Products 0.0989 -0.0513
17 Manufacture of Textiles 0.0638** 0.0284**
18 Manufacture of Wearing Apparel 0.1410*** 0.0593***
19 Tanning of Leather 0.0468 0.0503**
20 Manufacture of Wood, Cork, Straw, Plating Material Products
0.1019*** 0.0378
21 Manufacture of Paper and Paper Products 0.0963*** 0.1149
Publishing, Printing and Reproduction of 0.1146** 0.076***
IC Industry Description
Exponential Growth Rate of Output in Organised Industries in the Rural Sector
Exponential Growth Rate of Output in Organised Industries in the Urban Sector
23 Manufacture of Cork, Refined Petroleum Products and Nuclear Fuel
0.2895*** 0.2031***
24 Manufacture of Chemicals and Chemical Products
0.0670*** -0.0011
25 Manufacture of Rubber and Plastic Products 0.0579*** 0.0313 26 Manufacture of other Non-Metallic Mineral
Products
0.1536*** 0.0981***
27 Manufacture of Basic Metals 0.2273*** 0.1425***
29 Manufacture of Machinery and Equipment N.E.C.
0.1095*** 0.0317
30 Manufacture of office, accounting and computer machinery
0.2087*** 0.0523
31 Manufacture of Electrical Machinery and Apparatus N.E.C.
0.1489*** 0.085**
32 Manufacture of Radio, Television, Communication Equipment and Apparatus
0.0656** -0.0061
33 Manufacture of Medical, Precision and Optical Instruments
0.0618 0.0783*
34 Manufacture of Motor Vehicles, Trailers and Semi-Trailers
0.2038*** 0.2077***
35 Manufacture of Other Transport Equipment 0.1760*** 0.0248
36 Manufacture of Furniture, Manufacturing N.E.C.
0.1272*** 0.0762**
37 Recycling 0.2332 0.4464***
Source: Computed using Time Series Data on Annual Survey of Industries (1998-99 to 2007-08).Significance levels: *p<0.1;
**p<0.05; ***p<0.0
4.3. Profit Rate Decomposition Analysis: The Theoretical